Distribution Channels

Nature and importance of

channels

Channel behavior &

organization
Channel design decisions
Channel Management
decisions

Nature and importance of channels

Most businesses use third parties or intermediaries to bring
their products to market.
They try to forge a "distribution channel" which can be defined
as All the organizations through which a product must
pass between its point of production and consumption
Why does a business give the job of selling its products to
intermediaries?
The answer lies in efficiency of distribution costs. Intermediaries
are specialists in selling. They have the contacts, experience and
scale of operation which means that greater sales can be
achieved than if the producing business tried to run a sales
operation itself.

annel behavior and Organization

For example,
A Toyota dealer depends on the Motor company to design
cars that meet consumer needs.
In turn, Toyota depends on the dealer to attract consumers,
persuade them to buy Toyota cars, and service cars after the
sale.
The Toyota company also depends on other dealers to
provide good sales and service that will uphold the
reputation of Toyota and its dealer body.
In fact, the success of individual Toyota dealers depends on
how well the entire Toyota distribution channel compete with
the channels of other automobile manufacturers.

Channel Conflicts Horizontal and

Vertical
Horizontal conflicts occurs among firms at the same level of
the channel.
For example, some Ford dealers in Chicago complained
about other dealers in the city who stole sales from them by
being too aggressive in their pricing and advertising or by
selling outside their assigned territories.
Vertical conflicts refers to conflicts between different levels
of the same channel.
For example, General Motors came into conflict with its
dealer some years ago by trying to enforce service, pricing,
and advertising policies.

Channel design decisions

Analyzing customer needs
(a) Lot size (b) Waiting and delivery time (c) Spatial convenience
(d) Product variety (e) Service backup
Establishing channel objectives
Channel objectives should be stated in terms of targeted service
output levels. Channel design must take into account the strengths
and weaknesses of different types of intermediaries.
Identifying major channel alternatives
A channel alternative is described by three elements : (a)the types of
available business intermediaries, (b) the number of intermediaries
needed, (c) and the terms and responsibilities of each channel
member.
Evaluating major channel alternatives

Analyzing customer needs

(a)Lot size :
() In buying cars for its fleet, Hertz prefers a channel from
which it can buy a large lot size.
()A Household wants a channel that permits buying a lot
size of one.

(b) Waiting and delivery time

The average time customers of that channel wait for receipt

of the goods. Customers increasingly prefer faster and faster
delivery channels.

(c) Spatial convenience :

The degree to which the marketing channel makes it easy for
customers to purchase the product.
Example : Chevrolet offers greater spatial convenience than
Cadillac, because there are more Chevrolet dealers.
Chevrolets greater market decentralization helps customers save
on transportation and search costs in buying and repairing an
automobile.

(d) Product variety :

The assortment breadth provided by the marketing
channel.
Normally, customers prefer a greater assortment because
more choices increase the chance of finding what they need.
United Spirits Limited (USL) is the largest spirits
company in the world by volume, selling 114 million
cases for the fiscal ending March 21, 2011.

(e) Service backup :

The add-on services are the credit, delivery,

installation, repairs and others provided by the channel.

The greater the service backup, the greater the work
provided by the channel.

ablishing channel objectives

Channel objectives are a part of and result from the companys

marketing
objectives that need to be stated in terms of targeted service
output levels.
Profit considerations and asset utilization must be reflected in
channel objectives and the resultant design.
It should be the Endeavour of the channel members to minimize
the total channel costs and still provide with the desired level
ofservice outputs.
For example,
1. Perishable products require more direct marketing because of
the dangers associated with delays and repeated handling.
2. Products requiring installation and/or maintenance services are
usually sold and maintained by the company or exclusively
branches dealers.

Identifying major channel alternatives

Companies can choose from a wide variety of channels for

reaching customers from sales forces to agents, distributors,

dealers, direct mail, telemarketing, and the internet.
Three Elements of Channel Alternatives :
1. The type of business intermediaries Company Sales
force, prospects in the area, Manufactures Agency,
Industrial Distributors..
2. The number of intermediaries Intensive Distribution
& Exclusive Distribution.
3. Terms and responsibilities of each channel
participants price policies, conditions of sale, territorial
rights and specific service to be performed by each party.

Evaluating major channel alternatives

Economic criteria :- Each channel alternative will produce a different
level of sales and cost.
Example : Company sales representatives are better trained to sell the
companys products..
A Sales agency could comically sell more than a company sales force due
to more sales guys and better knowledge of the geographical area..

Control criteria :- Channel evolution has to include control issues. Using

a sales agency poses a control problem.
Example : The agent might not master the technical details of the companys
product or handle its promotion materials effectively.

Adaptive Criteria :- Each channel involves some duration of commitment

and loss of flexibility.
Example : A manufactures seeking a sales agency might have to offer a five
year contact. During this period, other means of selling such as direct mail
might become more effective, but the manufactures is not free to drop the

Channel Management decisions

Channel management warrants :
Selecting channel members :
characteristics of intermediaries channel members
length of business, other lines carried, growth and profit
record, cooperativeness and reputation.
Motivating individual channel members :
Positive motivators higher margins, special deals,
premium, cooperative advertising allowances, display
allowances and sales contests.
Negative motivators threatening to reduce margins, to
slow down delivery, or to end the relationship altogether.
Evaluating their performance over time :
Evaluating standards sales quotas, average inventory
levels, customer delivery time, treatment of damaged and
lost goods, cooperation in company promotion and training
programs and customer service.

For example,
when IBM first introduced its PS/2 personal computers, it reevaluated its dealers and allowed only the best ones to
carry the new models .
Each IBM dealer had to submit a business plan, send a
sales and service employee to IBM training classes and
meet new sales quotas.
Only about two-thirds of IBMs 2,200 dealers qualified to
carry the PS/2 models.

THANK
S